The hopes of many prospective homebuyers suffered a blow as new residential construction activity surprisingly decreased last month. Figures released by government agencies paint a grim picture, with housing starts plummeting amid a housing supply crisis already squeezing buyers.
In March, the number of new housing units on which construction was initiated tumbled 14.7% compared to February’s levels, according to data from the U.S. Census Bureau and the Department of Housing and Urban Development. This sharp monthly decline brought the seasonally adjusted annualized rate down to 1.321 million units—representing a 4.3% year-over-year drop.
“This month’s dismal new construction numbers align more closely with previous sluggish trends after February’s impressive surge,” said Hannah Jones of Realtor.com®. In Jones’ estimation, boosting inventory, whether for sale or rental properties, will be crucial to alleviating rising costs in today’s severely under-supplied housing market.
The unexpected slump in new home building could spell further trouble for buyers already contending with record-low listings of previously owned dwellings. With resale inventories nearly tapped out, newly constructed units have offered a vital pipeline of fresh housing supply.
According to Realtor.com, the slump “marked the largest monthly percentage decline since April 2020, during the onset of the COVID-19 pandemic. The March figures were also the lowest total seen since August of last year.”
While overall housing starts retreated, the single-family segment experienced conflicting momentum. Though starts of single-family homes climbed 21.2% year-over-year in March, this annual gain was overshadowed by a 12.4% month-over-month decline from February’s elevated pace. Permits for future single-family construction also slid 5.7% following nearly two years of steady monthly increases.
The multi-family sector endured even steeper losses, with the starts of apartment buildings and condominiums collapsing 20.8% below the prior month’s level. This continued downswing reflects easing rental demand and a glut of newly built multi-family properties saturating the market as developers pump the brakes on additional projects.
“Looking ahead, we still think single-family starts stand to benefit from the lack of second-hand homes on the market, shifting demand to newbuilds,” said Thomas Ryan, an economist at Capital Economics. “However, that strength will likely be offset by weakness in multi-family starts, which we expect will remain around current levels, leaving total housing starts a little higher than they currently are by the end of this year.”
Regionally, new home construction retreated across the Northeast, Midwest, and South last month, while the West stood as an outlier with a 7.1% monthly increase and 48.1% year-over-year surge. According to Lisa Sturtevant of Bright MLS, “The Western region’s spike in new construction offers a positive sign for buyers there grappling with limited inventories and sky-high prices.”
Homebuilders cite escalating financing pressures from soaring interest rates as a mounting headwind. “Builders are grappling on several fronts as the inflation fight continues,” Carl Harris, chairman of the National Association of Home Builders, told Realtor.com. “Higher interest rates are increasing the cost of housing for prospective home buyers and raising the development and construction cost for builders of homes and apartments.”
With the average 30-year mortgage rate at around 7% following an upside surprise in March inflation data, the industry fears further new home construction cutbacks lie ahead. “With single-family permits also down last month, production will likely contract again in April,” cautioned Danushka Nanayakkara-Skillington, NAHB’s forecasting specialist.
